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The DOJ And The SEC Probing The Investigations Of The Collapse Of Silicon Valley Bank

The investigation of the failure of Silicon Valley Bank involve shares that sold and bonds that were bought by the bank

The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank in separate probes, according to people familiar with the matter.

The investigations from both departments are currently in the preliminary phases of examining the collapse.

The Justice Department, Securities and Exchange Commission, and the offices of the Silicon Valley Bank declined to comment or speak to the media, according to the Wall Street Journal.

SVB collapsed on Friday as examiners from the Federal Reserve and the Federal Deposit Insurance Corporation (FIDC) reviewed the company’s finances and statements. Hours later, the California Department of Financial Protection and Innovation took over the bank as it appointed the FDIC as the receiver. CDFPI cited insolvency and liquidity for the takeover of SVB.

The bank had catered mostly to startups in the tech industry, including investors who funded them. 

A Silicon Valley Bank office is seen in Tempe, Arizona, on March 14, 2023. – With hindsight, there were warning signs ahead of last week’s spectacular collapse of Silicon Valley Bank, missed not only by investors, but by bank regulators. REBECCA NOBLE/GETTY IMAGES

SVB Financial was the parent company for Silicon Valley Bank. It is the second-largest bank failure in economic history since Washington Mutual fell in 2008.

In a Securities filing, SVB CEO Greg Becker and SBV CFO Daniel Beck both sold their shares in the company prior to the week of the collapse. A lawsuit was filed against SVB Financial by a group of shareholders led by Chandra Venipenta that both Beck and Becker failed to disclose the risks of future interest rates that affect their business, according to WRBC.

“It appears that the recent investigations launched by the DOJ and SEC are related to stock sales by Gregory Becker and Daniel Beck, the former CEO and CFO of SVB. These executives are insiders who sold stock under what are known as 10b5-1 plans. A 10b5-1 plan is a safe harbor from the rules prohibiting insider trading,” said Michael James Maloney, an attorney from the New York law firm, Felicello Law P.C., whose specialization includes security, financial, and commercial.

“Ultimately, management at SVB decided to continue to hold its longer term U.S. treasury bonds in the face of rising rates.”

Beck had sold 2,000 shares of SVB Financial and Becker sold 12,451 share that he had exercised options on them, according to CNBC.

In a report, SVB Financial cautioned and warn investors in lending to new companies in tech, life sciences, and healthcare that SVB was heavily focused on as their customer base. 

It had assets of $209 billion and deposits of $175.4 billion at the time of the collapse. SVB had invested a large of amount of deposits in the long-term Treasury bond as it sought to receive a higher return on investment. As the inflation rates went, the Federal Reserve interest rates increase as the value of the bonds decreased.

Despite the fallout, President Joe assured the American public regarding the safety of the banking system.

“American can have confidence that the banking system is safe,” Biden said in a statement regarding the SVB collapse. “Your deposits will be there when you need them.”

Signature Bank was the second largest to have failed over the weekend, which their customers were mostly in the cryptocurrency industry. 

“As a CEO of a fully regulated cryptocurrency launchpad, the recent collapse of Silicon Valley Bank raises concerns about the risks associated with unregulated crypto finance institutions,” said Marius Grigoras, the CEO of BHero, a complete crypto launchpad designed for startups.

“The collapse highlights the need for stronger regulatory oversight in the industry to ensure consumer protection and prevent devastating consequences.”

Deposits for Signature Bank came from the cryptocurrency sector. The bank had announced it would lessen the cryptocurrency deposits by $8 billion, according to Reuters.

The SEC are examining whether the bank had appropriately disclosed the financial risks or business uncertainties before the collapse. The agency is look at any wrongdoing or misfiling in reporting of shares sold as they will continue to probe the collapse of SVB. 

“In times of increased volatility and uncertainty, we at the SEC are particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly,” SEC Chair Gary Gensler said in a state on Sunday following the events of SVB and Signature Bank.

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